What would happen in the economy if

[fluidistic]

I've googled this question and saw some answers already, but they do not convinced me.
What would happen in the economy if everyone in the world wake up and see 1 billion dollars in their house or stuff in where they live.

Some people would want to build a huge house or buy lots of apartments but the workers wouldn't want to work anymore since they are rich so that people could only buy buildings already built. It seems like nobody would want to work and people would start to starve until prices get very high (huge inflation) so that the money is still worth something. Some lucky guys who bought apartments would never get poor even when the economy stabilizes later.

I'd like answers from people that studied economy or people that know about it somehow well; unlike me.

Thank you.

 

[WhoWee]

I've googled this question and saw some answers already, but they do not convinced me.
What would happen in the economy if everyone in the world wake up and see 1 billion dollars in their house or stuff in where they live.

Some people would want to build a huge house or buy lots of apartments but the workers wouldn't want to work anymore since they are rich so that people could only buy buildings already built. It seems like nobody would want to work and people would start to starve until prices get very high (huge inflation) so that the money is still worth something. Some lucky guys who bought apartments would never get poor even when the economy stabilizes later.

I'd like answers from people that studied economy or people that know about it somehow well; unlike me.

Thank you.

If everyone had $1Billion - the value of each dollar would be less - prices would increase.

 

[fluidistic]

If everyone had $1Billion - the value of each dollar would be less - prices would increase.

Yes, inflation is something that would occur. I'd like to know how much time would it take for inflation to occur and more or less the percentage of inflation. Also, once people spend their billion dollars, there would be some deflation. How much time for that to happen? Maybe some people could save some of their billion dollars? What exactly would happen? A total redistribution of the poor/wealthy and medium class?

 

[WhoWee]

Yes, inflation is something that would occur. I'd like to know how much time would it take for inflation to occur and more or less the percentage of inflation. Also, once people spend their billion dollars, there would be some deflation. How much time for that to happen? Maybe some people could save some of their billion dollars? What exactly would happen? A total redistribution of the poor/wealthy and medium class?

If everyone had $1Billion - who would work - and what would their wage expectations be?

 

[fluidistic]

If everyone had $1Billion - who would work - and what would their wage expectations be?

As I said in my first post, it seems like nobody would want to work. This would be true at least for the first days or until inflation gets significant enough so that the 1 billion dollars isn't so huge.
Not sure the wage would have time to change though.

 

[WhoWee]

As I said in my first post, it seems like nobody would want to work. This would be true at least for the first days or until inflation gets significant enough so that the 1 billion dollars isn't so huge.
Not sure the wage would have time to change though.

The money would be worthless if you couldn't spend it - the economy might turn to barter for goods and services.

 

[talk2glenn]

Whowee is correct - it is not the case that nobody would want to work, but it is the case that nobody would want to work for dollars.

 

[Mythic]

Everyone suddenly having 1 billion would have the effect of devaluing the currency to the point where most prior wealth would be lost. Maybe Bill Gates, who had say 70 billion, would now have 70 times a person's worth rather than 70 million times a person's worth (rough numbers but so what). Most millionaires would have lost everything. Everyone could throw away their money and the old rich would be no more. Keep dreamin'.

 

[phinds]

As I said in my first post, it seems like nobody would want to work. This would be true at least for the first days or until inflation gets significant enough so that the 1 billion dollars isn't so huge.
Not sure the wage would have time to change though.

I think you're missing the point. Whoee had it right but was a bit mild. Your scenario would result in total chaos. Currency would be essentially worthless because no one would really know how to price goods in it and we'd go back to a barter system and because we're not even CLOSE to being ready for a barter system, commerce would break down most likely. As the guy said in GhostBusters "STARVATION, MASS HYSTERIA ... "

I don't thing I'm exaggerating on this.

 

[WhoWee]

I think you're missing the point. Whoee had it right but was a bit mild. Your scenario would result in total chaos. Currency would be essentially worthless because no one would really know how to price goods in it and we'd go back to a barter system and because we're not even CLOSE to being ready for a barter system, commerce would break down most likely. As the guy said in GhostBusters "STARVATION, MASS HYSTERIA ... "

I don't thing I'm exaggerating on this.

The reality is that we are not self sufficient as individuals.

 

[talk2glenn]

Everyone suddenly having 1 billion would have the effect of devaluing the currency to the point where most prior wealth would be lost. Maybe Bill Gates, who had say 70 billion, would now have 70 times a person's worth rather than 70 million times a person's worth (rough numbers but so what). Most millionaires would have lost everything. Everyone could throw away their money and the old rich would be no more. Keep dreamin'.

You folks are inventing apocalyptic consequences which just are not there. The vast majority of the worlds wealth is not stored in dollars. Bill Gates, for example, probably holds all sorts of assets - equities, real property, etc. At most he holds a few million in cash or equivalents for regular expenses.

Your scenario would result in total chaos.

Highly unlikely. There would be a transition period, but the market would work itself out relatively quickly and with minimal disruption. People can trade in anything; we use paper currency for convenience and other such practicalities, but the world is full of episodes where the national currency was either debased or just unavailable. It certainly wasn't helpful, but it wasn't catastrohpic in and of itself. Usually, currency debaseing follows broader economic problems; its more symptom than disease.

 

[EntropicLove]

with the qty of the money increasing relative to other economies it would just increase price equilibrium and cause inflation unless you add 1billion in actual capital/value in which case our country would have a net worth increase.

 

[phinds]

with the qty of the money increasing relative to other economies it would just increase price equilibrium and cause inflation unless you add 1billion in actual capital/value in which case our country would have a net worth increase.

Reread the OP. He said everyone in the WORLD, not everyone in our country.

 

[EntropicLove]

Reread the OP. He said everyone in the WORLD, not everyone in our country.

Oh my mistake:

WORLD not national (eg United States).

Obviously if world money supply increased relative to economic capital (human, land etc) it would cause inflation because fiat currency isn't worth anything and the numerical increase would dilute everyones on-paper investments--Hyper-inflation but since it would be on world scale this would eventually stabilize but not be as bad since increase would be across the globe.

Increase in net value (including all capital) would strengthen the value of every currency, it would also have the indirect effect of decreasing bank interest rates since many requesting fiat would have assets to support their demand.

 

[WhoWee]

Oh my mistake:

WORLD not national (eg United States).

Obviously if world money supply increased relative to economic capital (human, land etc) it would cause inflation because fiat currency isn't worth anything and the numerical increase would dilute everyones on-paper investments--Hyper-inflation but since it would be on world scale this would eventually stabilize but not be as bad since increase would be across the globe.

Increase in net value (including all capital) would strengthen the value of every currency, it would also have the indirect effect of decreasing bank interest rates since many requesting fiat would have assets to support their demand.

On the other hand - anyone living in a country with a 90% top tier tax rate would find themselves with a large tax bill.

 

[phinds]

On the other hand - anyone living in a country with a 90% top tier tax rate would find themselves with a large tax bill.

Why? It isn't income and some places don't have a gift tax.

 

[WhoWee]

Why? It isn't income and some places don't have a gift tax.

If $1Billion appeared in your bank account overnight - it wouldn't be income?

 

[EntropicLove]

Actually it would be nationally (for either Australia or US since the OP mentions dollars); 1 billion AUD is not equal to 1 billion USD.

 

[WhoWee]

Actually it would be nationally (for either Australia or US since you mention 1 billion dollars). 1 billion yen is not equal to 1 billion USD.

The op said dollars - each country has it's own tax policy.

 

[phinds]

If $1Billion appeared in your bank account overnight - it wouldn't be income?

No, it's a gift and some places don't have gift taxes. Income comes from employers or investments.

 

[WhoWee]

No, it's a gift and some places don't have gift taxes. Income comes from employers or investments.

The op doesn't indicate a gift. The funds just appear - could be a banking error(?) - taxable income in the US.

"What would happen in the economy if everyone in the world wake up and see 1 billion dollars in their house or stuff in where they live."

 

[phinds]

The op doesn't indicate a gift. The funds just appear - could be a banking error(?) - taxable income in the US.

"What would happen in the economy if everyone in the world wake up and see 1 billion dollars in their house or stuff in where they live."

A banking error would be corrected and not taxed. This falls from the sky so to speak and is therefore a gift. In the US this is taxed but not everywhere.

I still contend that all these side issues are irrelevant. The situation described would destroy currency and would result in mass chaos.

 

[WhoWee]

A banking error would be corrected and not taxed. This falls from the sky so to speak and is therefore a gift. In the US this is taxed but not everywhere.

I still contend that all these side issues are irrelevant. The situation described would destroy currency and would result in mass chaos.

If the Governments seized the majority of funds as taxes - the outcome would not be as certain. The Governments would decide how to use the proceeds.

 

[phinds]

If the Governments seized the majority of funds as taxes - the outcome would not be as certain. The Governments would decide how to use the proceeds.

No, it wouldn't matter. Currency would be worthless (THAT is my fundamental point here) and there would be chaos because we're not set up to deal with a barter economy.

You can't buy and sell things with currency if there is no agreement on what the currency is WORTH and under these circumstances no one would have any idea what, if any, all this currency was actually worth.

How do you propose prices would be set? You really need to think this through. Remember, the price someone sets for something has to reflect what he can DO with the currency he gets for it which means that not only do he and his buyer have to agree on the price for THAT transaction, they both have to have some sense that this will be in line with OTHER transactions. The domino effect of this means that no one would really know what currency is worth. A whole new set of valuation would have to be well agreed to by everyone in the world (again, you may need to think this through, but when you do you'll see I'm right ... in today's economy it's not enough to just have agreement within each country).

When was the last time everyone in the world agreed to anything quickly enough to avert the chaos I say will be the consequences?

I have no doubt that over time some agreement WOULD be reached, but I still say the interim chaos would be extremely severe and side issues such as taxation are irrelevant.

 

[WhoWee]

No, it wouldn't matter. Currency would be worthless (THAT is my fundamental point here) and there would be chaos because we're not set up to deal with a barter economy.

You can't buy and sell things with currency if there is no agreement on what the currency is WORTH and under these circumstances no one would have any idea what, if any, all this currency was actually worth.

How do you propose prices would be set? You really need to think this through. Remember, the price someone sets for something has to reflect what he can DO with the currency he gets for it which means that not only do he and his buyer have to agree on the price for THAT transaction, they both have to have some sense that this will be in line with OTHER transactions. The domino effect of this means that no one would really know what currency is worth. A whole new set of valuation would have to be well agreed to by everyone in the world (again, you may need to think this through, but when you do you'll see I'm right ... in today's economy it's not enough to just have agreement within each country).

When was the last time everyone in the world agreed to anything quickly enough to avert the chaos I say will be the consequences?

I have no doubt that over time some agreement WOULD be reached, but I still say the interim chaos would be extremely severe and side issues such as taxation are irrelevant.

I have thought this through and think governments worldwide would move very quickly to seize as much of the cash as possible.

This would devalue the funds but not as much as keeping the funds in circulation might.

Now, with various governments holding the cash - the poorer countries would be able to invest in infrastructure and provide food, shelter and other basics in some places. Wealthy countries could retire all debts and invest as necessary.

 

[phinds]

I have thought this through and think governments worldwide would move very quickly to seize as much of the cash as possible.

This would devalue the funds but not as much as keeping the funds in circulation might.

Now, with various governments holding the cash - the poorer countries would be able to invest in infrastructure and provide food, shelter and other basics in some places. Wealthy countries could retire all debts and invest as necessary.

Well, they might try but that would just add to the chaos. Do you think folks are going to readily surrender the money? How about in countries where the government holds little sway.

I don't think you have really thought this through as a real-world problem. Your conceived solution is admirable but simplistic.

 

[WhoWee]

Well, they might try but that would just add to the chaos. Do you think folks are going to readily surrender the money? How about in countries where the government holds little sway.

I don't think you have really thought this through as a real-world problem. Your conceived solution is admirable but simplistic.

Not so simple really. What is the old saying about "out of chaos"?

If the existing governments didn't move to tax the funds and allowed the global system to collapse - a single global authority may arise. It would be both a windfall and survival for the existing governments.

 

[fluidistic]

The op doesn't indicate a gift. The funds just appear - could be a banking error(?) - taxable income in the US.

"What would happen in the economy if everyone in the world wake up and see 1 billion dollars in their house or stuff in where they live."

It wasn't a real situation. It can't be a banking error since there are not so many banknotes in the world. So it can't be a gift either. Say they just appeared out of... nowhere.

 

[WhoWee]

It wasn't a real situation. It can't be a banking error since there are not so many banknotes in the world. So it can't be a gift either. Say they just appeared out of... nowhere.

Again - the existing governments of the world would have a windfall of about $900Million per person - IMO.

 

[phinds]

...If the existing governments didn't move to tax the funds and allowed the global system to collapse - a single global authority may arise. It would be both a windfall and survival for the existing governments.

Now you're REALLY off into never-never land.

I find all your optimism admirable, but totally unrealistic. You and I are just talking past each other, partially I think because we see the world quite differently, and it's clearly pointless to continue since we're not going to convince each other.

Cheers ...

 

[WhoWee]

Now you're REALLY off into never-never land.

I find all your optimism admirable, but totally unrealistic. You and I are just talking past each other, partially I think because we see the world quite differently, and it's clearly pointless to continue since we're not going to convince each other.

Cheers ...

Given the far-fetched topic of the thread - it seemed all possibilities should be considered.

 

[BWV]

why speculate - look at history. Hyperinflations in Germany, Brazil, Zimbabwe etc give you an idea what would happen

 

[WhoWee]

why speculate - look at history. Hyperinflations in Germany, Brazil, Zimbabwe etc give you an idea what would happen

Of course - but that wasn't caused by giving everyone in the world $1Billion each.

 

[WhoWee]

I do have to wonder how fast some of the people would lose their $1Billion gambling?

 

[WhoWee]

because Income and gift taxes are rediculous and greedy. And other countries my have some sense of the poor and middle class. Where America doesn't care.

Can you clarify your meaning a bit?

 

[Pyrrhus]

I think most of you gave the correct answer. If everyone income is shifted up by some constant then economic theory says that prices must change as demand will change. In economics, prices are the outcome of the Walrasian Equilibrium (demand must equal supply), and thus the prices will adjust to guarantee this result. This is the statics of the problem.

The question becomes with regard to the dynamics of the problem how will the markets adjust to reach this stable equilibrium point. However, that requires knowledge of the organization of the market, and such. It might take several years to achieve the new equilibrium point, but there's no guarantee of stability as the problem stated do not give any details.